Ex-Visium fund manager identifies insider trading source

NEW YORK (Reuters) - A former Visium Asset Management portfolio manager on Tuesday identified a Washington-based policy expert as having helped him engage in insider trading by tipping him to a yet-announced government funding cut for home health services.

Christopher Plaford, who became a cooperating witness for U.S. authorities probing the hedge fund, testified in Manhattan federal court that in 2013, he obtained inside information from David Blaszczak, the founder of Precipio Health Strategies.

Plaford testified that while acting as a consultant to Visium, Blaszczak tipped him to an impending announcement from the Centers for Medicare and Medicaid Services (CMS) about a cut to Medicare reimbursement rates for some home health services.

Based on that information, Plaford said he arranged trades related to two home health service providers, Amedisys Inc and Gentiva Health Services Inc.

The testimony provided confirmation that the investigation that led Plaford to plead guilty in June also involved Blaszczak, who previously worked at CMS from 2000 to 2005, according to a LinkedIn profile.

In court papers, Blaszczak was identified only as "CC-2" or "Political Consultant" who obtained his information from a CMS employee.

Blaszczak has not been charged. Neither he nor his lawyer responded to requests for comment.

The testimony came during the trial of Stefan Lumiere, an ex-portfolio manager at Visium, which was founded by his former brother-in-law, Jacob Gottlieb.

The case stemmed from a probe that prompted the $8 billion firm's wind-down and charges against Lumiere and three others, including Sanjay Valvani, a portfolio manager who committed suicide in June after being accused of insider trading.

From 2011 to 2013, prosecutors said, Lumiere and others schemed to defraud investors by mismarking the value of securities held by the bond fund, causing its net asset value to be overstated.

Those others included Plaford, who testified that he worked with Lumiere to obtain sham broker quotes that would justify the securities' inflated valuations.

"I helped to create the values and also directed the broker quotes," Plaford said.

Plaford said when he initially discussed his conduct with the Federal Bureau of Investigation and prosecutors, he was not fully truthful about his wrongdoing, saying it "took a while for me to come to terms with what I had done."

He has since helped authorities with "whatever they ask me to do," Plaford said, including taping conversations with individuals.

The case is U.S. v. Lumiere, U.S. District Court, Southern District of New York, No. 16-cr-00483.